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Card Act shows positive results for borrowers

Some Michigan readers might remember hearing about a law called the Card Act which was a part of efforts that lawmakers undertook to adjust the financial system to be more friendly to borrowers. Under this law, credit card companies are limited in the types of fees that they can charge to customers and limited the ability of banks to raise the interest rate or change other terms without warning.

For example, banks were previously permitted to vary the due date of a credit card bill, even down to the hour. Borrowers would pay a bill in the evening that had a morning due date and could unknowingly subject themselves to late fees and interest. Some companies also charged additional fees to pay online or by telephone, making it harder or more expensive to meet a deadline.

The new law solves some of these problems with simple solutions, such as requiring credit card companies to send out bills 21 days in advance of a due date, up from the previous 14 that was required. Another change is that due dates must remain consistent and borrowers have until the next business day to pay if their due date falls on a weekend.

A study found that despite the low expectations for this new policy, the regulations actually worked to help borrowers by limiting fees and closing loopholes so that credit card companies could not imply replace them with other types of fees.

The changes were beneficial to an essential group – borrowers with poor credit scores. Overall, American consumers are saving more than $20 billion every year that the law is in effect, four so far.

While these findings are good news for people who are struggling with debt, solving these problems isn’t always the end of the story. For some, it might be necessary to seek debt consolidation or discharge of debts through bankruptcy in order to move forward.

Source: New York Times, “Card Act Cleared Up Credit Cards’ Hidden Costs,” Floyd Norris, Nov. 7, 2013.

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